context. This has resulted in a solution quite different from those of the fund’s peers. Norges Bank has managed the fund since the government made the first transfer back in 1996.
Through the Government Pension Fund Act, the Storting has assigned the responsibility for managing the Government Pension Fund to the Ministry of Finance. The Ministry has in turn chosen to delegate the operational management of the Government Pension Fund Global to Norges Bank and issued guidelines for how this role is to be fulfilled. The Ministry has also decided that all major investment strategy decisions are to be presented to and discussed in the Storting. This extensive debate and scrutiny ensure democratic legitimacy in matters concerning the management of the fund.
An investment manager by default
The parliamentary committee that deliberated the Petroleum Fund Act in 1990 emphasised that it would not be necessary to set up a separate administrative unit to manage the fund’s assets, making specific reference to the existing management of the foreign exchange reserves by Norges Bank.16
In 1995, it became increasingly likely that capital would accumulate in the fund, and it was time for the Ministry of Finance to resolve the issue of operational investment management. In the revised national budget for 1995, the Ministry stated, without further discussion, that the operational management of the fund would be delegated to Norges Bank, based on guidelines given by the Ministry.17 The first guidelines on the management of the fund were issued in May 1996 and based on the existing guidelines for Norges Bank’s management of the long-term foreign exchange reserves.18
The appointment of the central bank as the manager of the fund was politically expedient. It put an arm’s length between the politics and the savings. The central bank provided a well-established governance structure and a degree of institutional independence. It also meant that the government would not have to establish a new investment organisation that would not necessarily have the same institutional independence as the central bank.
19 An investment manager by contract
In March 1997, the Jagland government published the Long-term Programme for 1998–2001. The fund was now expected to reach 400 billion kroner by the end of 2001. Perhaps even more importantly, no withdrawals were expected before 2020.19 It became clear that the management of the fund would be a lasting assignment, even as some concerns persisted within Norges Bank with regard to reputational risk, organisational solutions and the internal ability to run a professional investment
organisation. Norges Bank established a project group in May 1997 to prepare for these
Knut N. Kjær, who led this group, aspired to establish a business-oriented and professional investment organisation within the central bank.
The project group was able to establish an ambition within Norges Bank to build a high-quality, performance-driven investment organisation. On 1 January 1998, Norges Bank Investment Management was created with Kjær as its first CEO. At that time, the fund’s value was 150 billion kroner.
A process to establish a long-term investment management framework continued throughout 1997. Norges Bank acted as the key advisor to the Ministry. Finance minister Jens Stoltenberg presented an investment strategy for the fund in the revised national budget for 1997, and secured parliamentary approval for concrete guidelines in the national budget for 1998. The new guidelines were issued in October 1997.20
This first set of public guidelines defined the key concepts of the fund’s investment strategy.
However, it did not cover the working
relationship between the Ministry of Finance and Norges Bank. An agreement to this effect was established in May 1999.21 This agreement
covered issues such as the use of external managers, remuneration and even the possible termination of the assignment. The agreement between the asset owner represented by the Ministry, and Norges Bank as the operational manager, was not made public.
An investment manager by law
As the fund grew in size and importance, the investment organisation became an ever larger part of Norges Bank, causing the question of the governance structure to be revisited more than once.
In June 2009, following the global financial crisis, the parliamentary finance committee asked the Ministry of Finance to assess the pros and cons of an alternative model with a separate board for the fund appointed directly by the Ministry.22 In the 2010 white paper on the management of the fund, the Ministry supported the existing structure.23 It stated that management within Norges Bank had contributed to the legitimacy of the fund structure, as it was an institution of great integrity with a strong reputation. The Ministry did not see compelling reasons to change a well-regarded model.
In April 2015, the government appointed a commission to review the Norges Bank Act.
An in-depth examination of the governance structure for the fund was not part of the original mandate for the commission, but the parliamentary finance committee, which had pushed for a wider discussion on the topic on several occasions, requested a broad review of alternative governance models for the fund.24
The commission, headed by Svein Gjedrem, who was both a twice former Secretary General of the Ministry and a former Governor of Norges Bank, published its recommendations in June 2017.25 It recommended that the fund should be
Norges Bank is an advisor to the Ministry of Finance on matters of economic policy. When Norges Bank’s role as the operational manager of the fund was confirmed in 1995, this advisory capacity naturally extended to the investment framework for the fund. In February 1996, as the prospect of the first transfer to the fund loomed, Norges Bank was asked to propose guidelines for the operational management of the fund.28 In August 1997, Norges Bank proposed that the Ministry of Finance should set the long-term investment strategy to meet the fund’s investment objective, and that the role of Norges Bank as operational manager should be to achieve the highest possible return within the constraints imposed by the guidelines from the Ministry.29
These principles formed the basis for the management framework that the Ministry presented to the Storting in the national budget for 1998.30 The 1998 management agreement gave Norges Bank the right to advise on any changes to the management framework. When the management agreement was updated in 2001, the mandate spelled out that Norges Bank also could put forward proposals on its own initiative.31 This highlighted that Norges Bank was not only the operational manager of the fund, but also an important advisor to the Ministry.
Advice from Norges Bank has been submitted in the form of publicly available formal letters. The Ministry’s assessments of this advice have taken the form of open submissions to the Storting or letters to Norges Bank. The organisational set-up at the Ministry of Finance and Norges Bank is relevant to how this advisory role has been understood and implemented. From 1998 to 2006, the role was performed by a designated advisory unit under the Governor. Norges Bank’s managed by a separate statutory entity and
argued that having two separate entities would make it easier to tailor their professional competence and governing bodies to their specific needs.
In October 2018, the Ministry submitted a white paper on a new Central Bank Act.26 In line with the 2010 discussion, the Ministry emphasised that Norges Bank was a trusted institution of great integrity that had achieved good results over time in both central banking and asset management. In addition, the Ministry
expressed explicit concerns that principal-agent problems could arise at an independent institution with goals and priorities not fully aligned with those of the asset owner. This position was supported by the Storting.27
In April 2019, the Ministry concluded the discussion by anchoring the role of Norges Bank as operational manager of the fund directly in the Central Bank Act. It can thus be argued that Norges Bank became the fund’s manager by default but is now the operational manager of the fund by law.
21 relationship with the Ministry of Finance as a
strategic advisor was further detailed in a 2004 addition to the management agreement.32 This stated that Norges Bank should seek to maintain all means of formal and informal dialogue with the Ministry in order to inform the decisions made by the Ministry. At the time, the Ministry had limited resources to conduct its own analyses and assessments, and the advisory unit could be seen partly as an outsourced resource for the Ministry and partly as an independent advisor.
In 2006, the responsibility for preparing advice for the Ministry was transferred to the
investment management organisation, in part to better incorporate its operational experience and expertise into the advisory process. At the same time, the Ministry of Finance expanded its own capacity to conduct assessments of investment strategy through the establishment of a separate asset management department. This was achieved partly by a transfer of resources from the advisory unit at Norges Bank to the Ministry.
The establishment of a separate asset management department, together with the decision in 2007 to publish an annual white paper on the management of the fund, was an acknowledgement of the increased importance and complexity of strategic oversight of the fund. This was also reflected in an ambition set out in the first white paper dedicated to the management of the fund:33 “The government aims to make the Government Pension Fund the best-managed fund in the world. This requires aiming for best international practice when managing the fund.”
The Ministry’s assessment of topics of strategic importance for the management of the fund will normally be presented in the annual white paper
submitted to the Storting. To aid in its assessments, the Ministry has obtained independent third-party advice from external experts on strategic topics. This comes in addition to advice provided by Norges Bank. In recent years, the Ministry has made increased use of public committees to provide analysis and recommendations as a basis for strategic decisions. This is a more public process, and the report from the committee will normally be put out for public consultation.
Ever since the fund’s inception, Norges Bank has had a mandate with two main components:
investing the fund and advising on investment strategy. We invest the fund with the aim of maximising return within the constraints imposed by the management mandate. We advise on improvements to the management mandate to help achieve the overall purpose of the fund as defined in the Government Pension Fund Act.
As the fund has grown in size and importance, the strategic considerations have also become more complex. Processes leading up to changes in the investment strategy may therefore run over several years, and the bar for strategic changes has risen.